In early June, lawmakers passed a $217 billion budget by a vote of 135 to 14. Nearly immediately after, Gov. Greg Abbott announced a legislative special session that would begin on July 18, 2017, to address 2o items that the legislature left unfinished.

The governor’s power to call a special session comes from Article 4, section 8(a) of the Texas Constitution, “on extraordinary occasions.” His proclamation must “state specifically the purpose for which the Legislature is convened.” The state’s constitution does not specify a minimum duration for the special session, but does set a maximum of 30 days. A Statesman article likened a special session to the “overtime period in a game. When issues important to the governor aren’t resolved by the end of the regular session, he or she can summon lawmakers back to Austin.Special sessions are mandatory only when lawmakers fail to send a budget to the governor. All other issues can be assigned to a special session at the governor’s discretion.

In our July article addressing the special session’s agenda, we noted that key priorities were reform of the school funding and property tax systems. These go hand in hand; under current law, more than half of local property taxes go to school districts.

With respect to property taxes, the special session ended without resolving the pending legislation that would increase them. As we recently explained, the measure under consideration, SB 1, which sought to lower the “rollback rate” from 8 percent to 4 percent, among other things. That is, if taxing unit were to adopt a tax that exceeds the 4 percent threshold, SB 1 called for an automatic rollback election. In the fiscal years from 2019 to 2022, a rollback rate reduction would cause a probable net revenue loss of between $144 million and $167 million for counties, and for cities, between $114 million and $132 million.

Similarly, the legislature closed with school finance reform looking all but dead. But at the last minute, Gov. Abbott signed HB 21 into law, leaving many unhappy.Gov. Abbott himself issued a tepid press release that did little more than emphasize his position that “[n]othing is more important than preparing our children for their future, which is why Texas will continue to prioritize investments in education.”

The fiscal note provides that HB 21 creates a grant program for fiscal years 2018 and 2019 to provide transition aid for school district financial hardship. Grant awards would be made according to a specified formula to districts and charters meeting certain eligibility criteria.

Among other things, HB 21 transfers, from the Health and Human Services Commission (HHSC) to the Texas Education Agency, $351 million in general revenue appropriations, to implement certain provisions, including:

$150 million to fund financial hardship grants

$60 million to fund payments to open enrollment charter schools

$60 million to support the existing debt allotment

$41 million to fund the increase in the small district adjustment

$40 million to fund the grant programs for services to students with autism and dyslexia

Should accomplishment of this $351 million transfer require delaying payments to managed care organizations in August 2019, the bill would require the commission to provide those payments as soon as possible from available appropriations in the following biennium.

HB 21 transfers another $212 million from the HHSC to the Teacher Retirement System of Texas (TRS) to support participants in the Texas Public School Employees Group Insurance Program. It does this by:

Reducing participants’ costs, including premiums, deductibles, and prescription drugs, during the 2018 and 2019 plan years.

Reducing the premium and maximum out-of-pocket cost for an enrolled adult child with a mental disability or a physical incapacity during the 2018 and 2019 plan years.

The fiscal note estimates that the measure will have a net impact to general revenue-related funds of $720,550 through the biennium ending Aug. 31, 2019. However, the estimated five-year net impact on general revenue funds is as follows:

The Texas Tribune detailed the gyrations that lawmakers engaged in when negotiating HB 21’s details. Initially introduced in the House, the Senate version “stripped funding and reforms,” which the House approved by a vote of 94-46. In addition, the Senate removed “$1.5 billion of new funding and all reforms to the outdated [allocation] formulas…[i]t also tasked a commission with studying future reform to the school finance system.”

With respect to the Senate’s funding method, the House voted 118-24 in concurrence, “deferring a payment to health care companies that provide Medicaid.”

Educators disappointed

The Tribune observed that “educators have thrown their support behind the original $1.8 billion version of HB 21;” almost 1,500 school superintendents and school board trustees wrote a letter to Lt. Gov. Dan Patrick asking the Senate not to change the bill. The letter equated the funding mechanism to a Ponzi scheme.

Indeed, the Texas Association Of Community Schools (TACS) was bitterly disappointed with the final product. In a legislative update, the group lamented how much more good the bill could have done. Even though it helps retired teachers with health insurance costs, Additional State Aid for Tax Reduction districts, and “a small number of students with disabilities get some extra resources, it is nothing compared to what [the previous version] would have done.”

TACS set forth a litany of problems included in the final version, which

slashed $1.5 billion from the bill, had ZERO increase in the basic allotment, no increased weights, and no other systemic changes…the Senate, Lieutenant Governor, and Governor showed loud and clear that they do not support public education and that they do not intend to fund it. Additionally, instead of using money from the bulging “Rainy Day Fund,” the Senate chose to take money from already cash-strapped Medicaid programs serving our poorest children.

Finally, the association decried the treatment of education like a business, with “competition, winners, and losers, [which] doesn’t make sense in the provision of a common good. If that is how we choose to approach education, then our democracy is headed to a much faster demise than [we] imagined.”

DAVID KALL

DAVID EBERSOLE

I am a recognized tax advisor who takes a team approach to working with clients to achieve business goals. I leverage my public sector background to understand all perspectives and leave no tax planning or tax controversy stone unturned.